As energy prices continue to climb, it makes sense to look for oil stocks to buy. Oil prices have been rising rapidly this year and are unlikely to stop anytime soon.
Naturally, these high levels bode incredibly well for energy stocks and their underlying businesses. However, with the stock market in ruins, several energy stocks have sold off, creating an excellent buying opportunity.
Oil prices will remain elevated in the interim. The Energy Information Administration (EIA) expects strong volatility to continue in the market based on multiple factors.
The macro-economic situation has a lot to do with it, but the sanctions on Russia are probably the biggest hiccup. Hence, it’s smart to scoop up some undervalued oil stocks as prices continue to rise at an astronomical pace.
|MGY||Magnolia Oil & Gas||$23.17|
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) has been the yardstick for the oil and gas sector and is among the oil stocks worth considering here.
Rising inflation rates have helped significantly improve sales and EBITDA margins, leading to record results. Additionally, the war in Ukraine has reshaped Europe’s energy markets forever. Exxon has a massive opportunity to expand its presence in the continent and take a considerable portion of the Russian market share.
Exxon’s first-quarter report saw how Europe had become one of the oil firm’s main markets. The refinery throughput in the region is impressive and the highest compared to other markets.
Additionally, petroleum product sales from Europe account for roughly 25% of the company’s total revenues. With Europe strengthening its energy security, Exxon could capitalize on the growing trend. In addition to this, XOM stock is undervalued and trades at 0.90 times forward sales, compared to its five-year average of 1.06.
ConocoPhillips (NYSE:COP) is a producer and distributor of oil across multiple markets worldwide.
After a rough 2020 COP has bounced back emphatically and expects a 13% bump in year-over-year production, producing 1.73 million barrels of oil equivalent per day in the upcoming quarter.
Moreover, the robust pricing environment will lift sales growth and free cash flows, which suffered in the past couple of years.
COP’s free cash flows shot up 13,316% last year, a mind-boggling increase that has helped increase its shareholder rewards. During the first quarter, it announced an increase in its share buyback program to $10 billion.
Moreover, investors should also expect a unique combination of variable and ordinary dividends of around $1.16 per share per quarter making COP one of the undervalued stocks to buy.
Magnolia Oil & Gas (MGY)
Magnolia Oil & Gas (NYSE:MGY) has been one of the leading energy companies in terms of profitability, maintaining an incredible balance sheet and rewarding shareholders through share repurchases. Its attractive risk-reward profile puts it among the enticing oil stocks trading at a bargain.
It owns highly cost-effective, high-margin Eagle Ford and Austin acreage in Southern Texas. Production enjoys strong sales price realization from its acreages which has helped fortify its financial flexibility.
Production has recovered significantly from its Covid-induced output crash, reaching 71,835 barrels per day for the first quarter. That number should continually rise with every passing quarter, significantly impacting free cash flows and maintaining a conservative leverage profile.
Gross and EBITDA margins are at a staggering 87.70% and 59%, respectively, on a year-over-year basis. Moreover, its total debt is just 0.48 times equity.
Marathon Oil (MRO)
Marathon Oil (NYSE:MRO) is a top oil and gas exploration and production company.
What puts it among the best oil stocks to buy is its clear-cut capital returns program.
It aims to return at least 40% of its free cash flows to its shareholders. The lack of ambiguity surrounding its capital returns program makes it one of the most compelling options in the industry.
With oil prices soaring, MRO continues to grow its free cash flows at an extraordinary pace. Last year, the metric grew by over 1,587%.
The stock trades at four times free cash flows which are dirt cheap in the current environment. If oil prices can return to $100, MRO could return a whopping $2 billion annually to its shareholders.
Chevron (NYSE:CVX) has established itself as one of the best oil stocks to buy with its rock-solid fundamentals, incomparable dividend profile, and a penchant for innovation over time.
It recently increased its dividend for the 35th year straight, a testament to how much it values its stockholders.
Warren Buffet’s investment firm Berkshire Hathaway significantly increased its stake in Chevron, making it its fourth-biggest equity holding.
Rising oil prices have helped strengthen Chevron’s fundamentals. It also contributed to accelerating its plans to expand its renewables business. The company has been taking steps to expand its hydrogen and carbon capture business and recently acquired Renewable Energy Group to develop renewable feedstock to support future fuel production.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) is an integrated oil and gas player that operates across the U.S., Middle East, Canada and Chile.
It has a diversified revenue stream, including oil and gas exploration, pipelines, petrochemicals, and other related businesses.
One of the future key growth drivers for the business is its massive $5 trillion global market for carbon capture. Its direct air capture (DAC) technology has enabled it over the years to increase its oil and gas output.
However, it now plans to take things up a notch and build its first DAC facility in the Permian Basin. Once the facility is in operation, it could potentially capture upwards of 1 million metric tons of carbon dioxide annually.
Vermilion Energy (VET)
Vermilion Energy (NYSE:VET) is a reputable international oil and gas player from Canada. It is arguably the pick of Canada’s oil and gas companies, boasting incredible fundamental strength and flexibility.
It recently reported its first-quarter earnings where its funds from operation rose to $390 million compared to $162 million.
VET continues to benefit from higher natural gas and oil prices like it did in the previous quarters and could further increase its free cash flows.
Its free cash flows improved to $305 million from $79 million in the same quarter last year. It reduced its debt load from $1938 million to $1365 million in the quarter. Its capital structure remains robust, and its cash and capital positioning show that it can increase its yield and bring handsome returns to its shareholders.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.